I work for an oil trading company. We sell petroleum products indexed on the Brent and hedge our fixed price sales using futures to offset price fluctuations. We do not engage in speculation. I was wondering if there was any advantage to engaging in delta hedging (or delta-gamma hedging) with oil options? I could not think of any, as futures hedges are close to perfect hedges, except for the fact that delivery periods do coincide with the months of futures contracts. However there are other ways to manage this time mismatch.
Assuming all other things being equal:
If you are long the commodity, and short the future, then your risk is zero.
If you are long the commodity, and sell a call, then you will earn the option premium, but risk the value of the commodity going down. In other words, you won't hedge against downside risk, but will trade upside risk for a guaranteed premium.
If you are long the commodity, and buy a put, then you will pay the option premium, and will be protected if the commodity goes down. However, if the commodity goes up, you'll earn less, because you had to pay for the premium.
Drawing some options payout diagrams can aid understanding on these topics.